The Polish Law of 19 June 2020 on Subsidies Concerning Interest on Bank Loans Advanced to Enterprises Affected by the Consequences of COVID-19 and on Simplified Proceedings Concerning the Approval of Composition in Connection with the Occurrence of COVID-19 (popularly known as Shield 4.0) has introduced a new subtype of the restructuring procedure. The idea was to speed up the process of whitewashing enterprises whose financial standing has deteriorated, including but not limited to enterprises suffering as a result of the COVID-19 pandemic. As it turned out, this has worked not only for the enterprises that recorded a slump in income caused by the pandemic.
The simplified restructuring procedure has quickly become popular with enterprises wishing to free themselves of excessive debts. Debtors were encouraged by the greatly accelerated procedure of composition approval, which was achieved by limiting the role of the court in favor of expanding the competences of the composition supervisor. Except for the technical activity consisting in publishing the announcement on opening the restructuring procedure, the court would get engaged only at the stage of approving the composition with creditors.
However, the solutions introduced under the said Law are temporary. According to Article 15.1 of Shield 4.0, announcing a simplified restructuring procedure is possible only until 31 June 2021.
On 15 February 2021, the Legal Commission of the Government Center for Legislation published on its website the final version of the bill of the Law on Amendments to the Polish Law on the National Register of Debtors and Certain Other Laws, which transfers the solutions provided for in the existing regulations on the simplified restructuring procedure to the Restructuring Law, at the same time introducing new solutions that are not contained in Shield 4.0.
Simplified restructuring procedure: how does it work?
The simplified restructuring procedure is a less complex variant of the procedure for the approval of a composition, which is a part of the restructuring procedure. In order to initiate the restructuring procedure, the debtor should execute a composition supervision agreement with a person holding the license of a restructuring supervisor and then make an announcement of opening the simplified restructuring procedure. From that moment, the debtor is protected against enforcement from his assets by the creditors. At the moment of opening the restructuring procedure, the debtor becomes limited in managing his property. In order to carry out actions beyond normal management of the enterprise, he needs approval from the composition supervisor.
Any of the creditors, the debtor, or the supervisor may file an application with the court for the consequences of the announcement in the Monitor Sądowy i Gospodarczy to be voided if they cause detriment to the creditors. However, prior to making this decision, the court should hear out the debtor. The court’s decision on voiding the consequences of the announcement may be complained against.
The supervisor is the main entity taking care of the proper course of the restructuring procedure. He is authorized to convene creditors’ meetings and collect the creditors’ votes with respect to the composition concerning the repayment of the debtor’s liabilities. From the moment of announcing the opening of the restructuring procedure, the debtor should, within four months, enter with his creditors into composition concerning the repayment of his liabilities covered with the composition and file with the relevant court an application for approval of the composition. Otherwise, the procedure will be discontinued by operation of law.
What solutions are proposed in the bill?
The new bill introduces the “Consequences of the Announcement of a Composition Date” chapter to the Polish Restructuring Law. According to the provisions of this chapter, the composition supervisor, having produced a list of claims, may publish in the Monitor Sądowy i Gospodarczy an announcement that a composition date has been specified. As of the moment of that announcement, the debtor is protected against enforcement by creditors that have the claims to be covered with the composition. This is a change of the sequence of the actions taken as part of the procedure—so far, the list was produced after the opening of the restructuring procedure. However, this may contribute to streamlining the procedure since, already from the moment of the announcement, all participants to the procedure know its object and have the opportunity to express their opinion on the indebtedness to be covered with restructuring.
An announcement of a composition date cannot be made with respect to a debtor that, over the last ten years, was involved in proceedings for the approval of a composition in which an announcement of a composition date was made or if, over the last ten years, a restructuring procedure carried out with respect to him was discontinued, except if the discontinuation took place with consent from the creditors’ committee. If the composition supervisor learns of any of the above circumstances, he will refuse to make the announcement. The purpose of this solution is to prevent debtors from evading enforcement by means of making constant announcements of composition dates.
Simplified restructuring procedure: the bill
The bill allows a debtor who has been refused by the supervisor to make an announcement of a composition date in the Monitor Sądowy i Gospodarczy to appeal. If the debtor disagrees with the supervisor’s decision concerning the announcement, he may complain against this refusal. The complaint is made to the restructuring court, via the supervisor, within one week of receiving the decision on refusal to make the announcement.
Similarly to the existing regulations, the bill provides the creditors, the debtor, and the supervisor with the right to demand that the court voids the announcement if the publication of the announcement is to the detriment of the creditors. The decision to void the consequences of the announcement may also be made if circumstances excluding the publication of the announcement arise.
Once the restructuring procedure has been opened, without the supervisor’s consent, the debtor may only carry out normal management of his enterprise. The debtor is obliged to provide the supervisor with full and true information about his property or otherwise he may be subject to criminal liability for making false representations. The composition supervisor may verify the debtor’s actions concerning his property. He may also inspect the activities of the debtor’s enterprise, as well as check if the debtor’s property that is not a part of his enterprise is sufficiently protected against destruction or loss.
Similarly to the existing regulations, the debtor has four months from the date of the publication of the announcement to enter into composition with the creditors and file an application for the composition to be approved. Otherwise, the procedure is discontinued by operation of law.
Simplified restructuring procedure: expected results of the bill
The fact that the bill has been drafted shows that the simplified restructuring procedure has worked out in Poland and should be available also outside of the COVID-19 pandemic. Speeding up the process of entering into and getting approval for composition increases the probability of the debtor and the creditors reaching an agreement, as the creditors are more likely to make concessions if they can hope, in the short term, that at least some of their claims will be satisfied. It is also convenient for the debtor since he does not have to wait for the court’s decision in order to become protected against enforcement by his creditors. In turn, increasing the probability of composition allows a number of enterprises to avoid bankruptcy and continue business operations.
Ensuring that the court supervisor oversees the procedure of making announcements in the Monitor Sądowy i Gospodarczy, at the same time allowing the debtor to appeal if the supervisor refuses to make the announcement, protects both the debtor and the creditor. This, on the one hand, allows prior verification by a professional entity of permissibility of instigating the restructuring procedure and, on the other hand, allows the debtor to question a groundless refusal to make the announcement. This is relevant because the publication of announcements in the Monitor Sądowy i Gospodarczy is a technical action that does not involve any subject-matter verification of the contents of the announcements to be published. The situation of creditors is also improved thanks to specifying in more detail the controlling rights of the supervisor with respect to the debtor’s property—they may expect that the risk of the debtor damaging or transferring out his property during the procedure will be lower.
The bill has been positively received in the legal world, including by the Allerhand Institute experts.